Investing in Women Entrepreneurs … With Help From Isaiah Berlin, Hedgehogs and Foxes

An investor lays out his rationale for investing in women-led companies.
By Adam Quinton (Founder & CEO, Lucas point Ventures)

While catching up with Laura Sachar, one of the co-founders of Starvest, last week I was asked: “So, why do you invest in women entrepreneurs?” and I answered:

I Want to Exploit the Power of Diversity

Early-stage investing is partly a numbers game. So anything that can tilt the odds in your favor seems to me worth pursuing and diversity is one such factor. The a priori chances of success in any individual angel investment are very low … the vast majority of returns come from no more than 10% of your investments. Of course, the most fundamental numbers game point that angels need to grasp is that volume/diversification are essential as pointed out in “Angel Investing by the Numbers,” for example. But for me the compelling evidence that gender diverse teams make better decisions is an additional and important one of those tilt factors. (See for example the 2011 HBR Article: “What Makes Teams Smarter?”)

I Want to Invest in an Under-appreciated Opportunity

Women entrepreneurs, and specifically women CEOs, are under appreciated when it comes to the investment process, specifically when pitching in my view, i.e. there is what economists could call a “market failure”. So a situation where capital is not appropriately allocated to set of investment opportunities based on non rational criteria, in the sense that the level of interest in those opportunities is not appropriately correlated with the chances and degree of success. There are (sadly) plenty of examples of women CEOs describing the differentially tougher challenges they faced when raising early stage capital. See for example the stories of Erika Trautman, Kathryn Minshew, Jules Pieri and Elizabeth Yin. The male dominated nature (80% of angels, 89% of VCs, c95% of the most senior VCs) of early-stage capital providers is the obvious issue here and, as I recently noted, likely means the VC community is not as innovative as it likes to think it is.

Reflecting on Laura’s question some more afterwards it stuck me I could have elaborated on the reasons for this under appreciation in the following two ways:

Pattern Recognition

StartUp land loves to talk about “pattern recognition”. Summarizing how this impacts diverse (aka not young straight white male techies) founders Dave McClure succinctly put the issue as follows:

“There’s a soft bias toward doing things that are familiar. That’s white male nerds.”At a deeper level, and in the context of women entrepreneurs, the gendered nature of behaviors (which can encompass all of verbal and non-verbal communication as well as appearance) come in to play in my view. Characteristics gendered masculine (“assertive”, “decisive,” etc.) are more commonly associated by both men and women … with leadership. In their HBR article and book: “Women and the Labyrinth of Leadership” Alice Eagely and Linda Carli summarize this finding, and the so called “double bind”, as follows:

Study after study has affirmed that people associate women and men with different traits and link men with more of the traits that connote leadership. Kim Campbell, who briefly served as the prime minister of Canada in 1993, described the tension that results:

I don’t have a traditionally female way of speaking….I’m quite assertive. If I didn’t speak the way I do, I wouldn’t have been seen as a leader. But my way of speaking may have grated on people who were not used to hearing it from a woman. It was the right way for a leader to speak, but it wasn’t the right way for a woman to speak. It goes against type.

Another Framing: Hedgehogs vs Foxes

When it comes to the specifics of women startup CEOs pitching their companies evidence is more anecdotal but I have repeatedly heard “the way we pitch” cited as an issue. While individual comments aren’t a good basis for generalization common observations I have personally come across can be bucketed as follows:

The scale of vision: So … just not as bold as the guys. Many women CEOs I have spoken say that they feel were disadvantaged by the way they made the case for their company, i.e. not emphatically calling out the inevitability of their soon to be $1bn business. Exhibit A: On the guy side of the ledger one of the founders of Rap Genius summarized the secrets to their success in the great post “How RapGenius Raised $1.8mn In Seed Funding Without Knowing What We Were Doing” stating: “So fundraising is a psychologically trying experience that depends very little on any sober analysis of the quality of your product and much more on how you can project confidence and manage your own psychology.” One women CEO I know reported being dumb struck by some of the unsubstantiated over the top (or so she felt) claims her (male) co-founder made in their first pitch meetings together. After some discussion and reflection she said she learnt to mimic at least some of his bravado!

Leading with more problems and giving detailed answers: Women entrepreneurs (again some not all) report that they feel they tend to balance positives with more negatives and, perhaps as a result, feel they can give too detailed answers in a pitch context. Result: they deemed less compelling (and hence less likely to get the second meeting) compared to the other six guys the investor saw that day who were all oozing conviction and who hit any question succinctly out of the park! As one CEO put it to me: “The detail, no matter how thought-out or on point, can often hurt you because in the vagueness it’s easier to sell a dream.”

Hence … maybe another case of Hedgehogs and Foxes?

While I might be connecting too many dots here, these issues reminded me of the decision-making paradigms laid out by Philip Tetlock in his brilliant book: “Expert Political Judgement“. He classifies thinking styles using Isaiah Berlin’s prototypes of the fox and the hedgehog with his years of study indicating that the fox (the thinker who knows many things) is more successful at predicting the future than the hedgehog (who knows one big thing). In what seems to me to be a parallel with the world of what “works” when pitching vs what works for pundits and the media, he noted the perverse inverse relationship between the best indicators of good judgment and the qualities that the media most prize in pundits, i.e. the media loves hedgehogs for their conviction … but they are actually the worst people to have making a prediction! So maybe women CEOs are the foxes of the pitching world and men disproportionately the hedgehogs!? Hence, just as you are more likely to get an accurate prediction in most any domain from a fox as opposed to a hedgehog, seems to me that CEO foxes are worth extra consideration too!

PS #2: Note that in answer to Laura I did not say either: a) because with women making 80% of purchasing decisions in the economy having a woman on the founding team ups the chances of bringing relevant expertise/experiences to bear that will enhance product development and sales/market decisions (which it will!) or b) because it’s an issue of “fairness” (which it is). The point being, this investment thesis makes sense enough just framed in clinical investment process and organizational decision-making terms. Add these further two considerations and the case is even more powerful.

This post originally appeared on A2A: Analyst to Angel. About the blogger: About the blogger: Adam Quinton is Founder/CEO of Lucas point Ventures and an active investor in and advisor to early-stage companies. He is a member of the Global Advisory Board for Astia, a Founding Angel at Astia Angel. He is also an Advisor for Topstone Angels. He serves as a Mentor for 37 Angels, accelfoods and Women Innovate Mobile.